Unadjusted trial balance can be prepared after posting journal entries into ledger accounts and it is the third step of accounting cycle. First, let us understand about basic concept of trial balance.
A Trial Balance is two columnar statement or document which carries closing balances of all the accounts recorded in general ledger. Trial balance can also be termed as ‘a list of closing balances of all ledger account on a specific date. The accounts having debit balances in their respective ledger accounts are inserted on the debit side of Trial balance and similarly accounts possessing credit balances in respective ledger accounts are inserted on the credit side of the Trial balance.
When all the posting from general journal to general ledger has been made by the accountant, it is suitable stage now to check and proof the arithmetic accuracy of the record. The confirmation of arithmetic accuracy is important before entering into next step in accountancy. In addition to this, before moving further, this is also vital to proof that every debit and credit account has its corresponded credit debit account which is the essence of double entry accounting system.
Every debit account has been recorded with credit account in an accounting entry.
For these reasons, the statement, device or tool which is used to proof arithmetic accuracy is the Trial Balance. Students, bookkeepers and business owners should take notice of the fact, the preparation of Trial balance is actually the first step towards preparation of Financial Statements which include Balance Sheet, Profit and Loss Account, Cash Flow Statement, Statement of Changes in Equity and the Notes to the Accounts. Without the support and input provided by a Trial Balance, the preparation of Financial Statements (also called Final Accounts) has become really difficult and cumbersome and may be impossible as well.
This is also important to remember in accordance with the accounting principles and double entry system, the both sides of a Trial Balance must be agreed, provided no error is committed in the previous record (Journal and Ledger).
Purposes of Trial Balance
- This is first steps towards the preparation of Financial statements;
- This is a sort of check on arithmetic accuracy of the entries made;
- It ensures that every debit account has been recorded with corresponded credit account while making the accounting entry.
Unadjusted Trial Balance
Once from above discussion, you have grasped the real concept and meaning of a Trial Balance and also have understood its purposes of preparation and usage, then to understand the meaning of an Unadjusted Trial Balance becomes very easy.
An unadjusted trial balance refers to and means the listing of all the closing balances appeared in ledgers before incorporating adjusting entries therein. In other words, a trial balance which is prepared at the first instance before making any sort of adjustments in the record is called an unadjusted trial balance.
An unadjusted trial balance is used and considered as a starting point for analyzing accounts and preparation of Draft Financial Statements.
After posting journal entries into ledger accounts Mr. Titus prepared the following unadjusted trial.
Management can use trial balance as assessment tool and must be adjusted, if necessary before preparing financial statements.